Timeline for $65000/year or $2500 every two weeks: If I claim 3 exemptions instead of zero, how much would my take home pay be?
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| Jul 30, 2012 at 20:34 | comment | added | KeithS | Now, there are some gotchas built into the tax code. You can't, for instance, claim so many exemptions that you end up owing more than $10k in taxes (even if you have no problem paying that much in April). The IRS wants that money in their coffers to ensure good cash flow. There's no maximum to how much the IRS will refund (so you could have your employer withhold 100% of your paycheck by specifying an additional amount equal to or greater than your net pay), but large refunds are an audit trigger. | |
| Jul 30, 2012 at 20:28 | comment | added | KeithS | Claiming allowances on a W-4 reduces the amount subject to withholding. It is assumed that you will claim the same number of actual exemptions on your 1040. It's typically a very good idea to reduce the difference between withholdings and actual taxes owed to near-zero; the Treasury (and your employer) get to keep any and all interest that gain from holding your withholdings in "escrow". However, it's never fun to pay the IRS right after holiday spending, especially when they've already taken 10 to 25% off the top of your check, so there's value in getting a big lump sum by over-withholding. | |
| Jul 30, 2012 at 20:18 | comment | added | MetaGuru | Wait so claiming allowances reduces your taxable income? I thought it just meant you got to keep some now instead of waiting until the end of the year to get it back... How do they prove that the allowances are legitimate?? | |
| Jul 27, 2012 at 18:25 | history | edited | KeithS | CC BY-SA 3.0 |
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| Jul 25, 2012 at 13:34 | comment | added | Justin Ethier | If you end up doing any more independent contracting it is a good idea to pay estimated taxes. You can pay them once per quarter, and it helps to avoid this kind of unpleasant surprise at tax time. | |
| Jul 24, 2012 at 15:40 | history | edited | KeithS | CC BY-SA 3.0 |
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| Jul 24, 2012 at 15:06 | comment | added | SoftwareSavant | Good gravy, that is what I call a good answer. I may need to read that several times before I take my GMAT's. If I am not mistaken that post has about all I need to know. But to get back to the subject, I did consult a tax professional at Turbo-tax... who basically told did the same calculations that I did (rip-off) and we got to the same number. The problem is that I worked as a independent contractor for 2 months of the year, so I effectively didn't pay taxes for 2 months that year. | |
| Jul 24, 2012 at 15:00 | vote | accept | SoftwareSavant | ||
| Jul 24, 2012 at 13:53 | history | edited | KeithS | CC BY-SA 3.0 |
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| Jul 23, 2012 at 22:47 | comment | added | KeithS | Ah, yes. If whoever he was working for didn't "employ" him, then he'd be paying the employer side of payroll taxes plus employer halves of Medicaid, FUTA and SUTA. That would, indeed, be "tax hell" IMHO. | |
| Jul 23, 2012 at 22:44 | comment | added | littleadv | +1, Very informative answer. The OP worked as an independent contractor and had SE income, that was probably the reason for underpayment. | |
| Jul 23, 2012 at 22:33 | history | edited | KeithS | CC BY-SA 3.0 |
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| Jul 23, 2012 at 22:25 | history | edited | KeithS | CC BY-SA 3.0 |
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| Jul 23, 2012 at 21:59 | history | edited | KeithS | CC BY-SA 3.0 |
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| Jul 23, 2012 at 21:12 | history | answered | KeithS | CC BY-SA 3.0 |